Loading the player...

DEFINITION of 'Past Due Balance Method'

A system for calculating interest charges based on any outstanding loan or credit charges that remain unpaid after a certain date. The past due balance method is used by credit companies whereby credit card holders have until a specified date to pay balances off before beginning to accrue interest fees. For example, if a credit card holder uses their card for daily purchases, the credit card company will offer a grace period during which no interest accrues. If balances are paid by this date, no interest accrues; if balances or a portion of the balance is not paid by this date, interest will begin to accrue.

BREAKING DOWN 'Past Due Balance Method'

Credit card companies use the past due balance method because it would be impractical to use a credit card and pay interest immediately on purchases. This method allows balances to remain unpaid until a specified due date, after which the balance would start to accrue interest. Balances on credit cards typically become due once each month and after this date the balance becomes past due, thus the past due balance method.

RELATED TERMS
  1. Credit Card Balance

    The amount of charges, or lack thereof, owed to the credit card ...
  2. Average Daily Balance Method

    A credit card accounting method where interest charges are based ...
  3. New Balance

    The new balance is the sum of your previous balance, payments, ...
  4. Average Outstanding Balance

    The unpaid, interest-bearing balance of a loan or loan portfolio ...
  5. Previous Balance Method

    A credit card accounting method where interest charges are based ...
  6. Balance Chasing

    The gradual lowering of a consumer’s credit limit by a credit ...
Related Articles
  1. Personal Finance

    Everything You Need To Know About Credit Card Rates

    Understanding credit card rates will help you choose the right credit card, and avoid any unpleasant surprises.
  2. Personal Finance

    The Credit Card Balance Transfer Trap

    Before you transfer a balance to a credit card with a lower interest rate, know how it affects new purchases and other fine-print traps that can cost you.
  3. Personal Finance

    Should You Use Credit Cards To Fund Your Business?

    We give you 4 reasons to consider using a credit card instead of a business loan to fund your business, and how to be smart about it.
  4. Personal Finance

    Why Making Minimum Payments Gets You Nowhere

    Getting out of debt can be difficult, but paying off a minimum balance each month only makes things worse.
  5. Personal Finance

    0% Balance Transfers: Can You Beat the Odds?

    Before you accept that 0% balance transfer offer, understand why you got it and who will probably profit most. Only accept if you can beat the odds.
  6. Personal Finance

    How Credit Cards Affect Your Credit Rating

    The average American household has four cards, but does that mean more is better?
  7. Personal Finance

    3 New Types Of Credit Cards To Look For

    These three types of credit cards are becoming popular with customers looking to pay less fees and build up their credit scores.
Hot Definitions
  1. Taxable Income

    Taxable income is described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments ...
  2. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial ...
  3. Initial Coin Offering (ICO)

    An Initial Coin Offering (ICO) is an unregulated means by which funds are raised for a new cryptocurrency venture.
  4. The Bernie Madoff Story

    Bernie Madoff ran a multibillion-dollar Ponzi scheme that is considered the largest financial fraud of all time.
  5. Pyramid Scheme

    An illegal investment scam based on a hierarchical setup. New recruits make up the base of the pyramid and provide the funding, ...
  6. Ponzi Scheme

    A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns ...
Trading Center